Here’s why you should invest in shares

Buying and selling shares is “a hugely exciting activity, but one that seems to be highly misunderstood by the public in general,” says Francois Joubert Chief Investment Strategist for Red Hot Penny Shares. However, the reality is it's actually very simple and there's very little to it. Read on to discover two reasons why you should consider investing in shares.

A lot of people shy away from taking the plunge into starting a share portfolio because they find it a little frightening and intimidating. They also fear it’s complicated or there’s something they’re not aware of.
However, “the reality is it’s actually very simple and there’s very little to it, especially if you know what you stand to gain by just being a shareholder,” says Joubert in Red Hot Penny Shares. That’s because no matter how small your shareholding, you’ll be more than an investor.

The two reasons you should invest in shares:

#1: Growing your wealth with ‘capital growth’

The first reason you should buy shares (or invest in shares) is for capital growth. You pay a certain price for a share in the hope this share will appreciate in value. This appreciation is known as capital growth.

“Provided the company is consistently growing revenues and improving earnings, you’ll experience some form of capital growth,” says Gareth Stokes, author of Fear, Greed and the Stock Market.

But, the key to being a successful long-term investor is to ensure the capital growth on your investment gives you a real return. This means, “the growth on your share investments should at least be better than inflation. If not, you’re going backwards,” says Stokes.

#2: Boosting your income with ‘dividends’

When you buy shares you take ownership of a percentage of the company. This entitles you to a share of the company profits.

“This dividend stream, usually paid twice a year, is the income that should form part of your motivation to invest in shares,” says Stokes. However, it’s advisable to consider how a listed company goes about the task of paying dividends.

Usually once the accounts are finalised and the half year or full-year earnings are known, the company will decide how much of the earnings they wish to pay out in dividends and how much of the earnings to retain. Earnings are retained for reinvestment in the company.

There you have it. Knowing the benefits of being a shareholder will allow you to take advantage and profit from the gains on offer.